This Article Full Text (PDF) References Alert me when this article is cited Alert me if a correction is posted Services Email this article to a friend Similar articles in this journal Alert me to new issues of the journal Download to citation manager Citing Articles Citing Articles via HighWire Citing Articles via Google Scholar Google Scholar Articles by Ghirardato, P. Articles by Marinacci, M. Search for Related Content

Risk, Ambiguity, and the Separation of Utility and Beliefs

Division of the Humanities and Social Sciences, California Institute of Technology, Pasadena, California 91125 and ICER (Torino, Italy)
Dipartimento di Statistica e Matematica Applicata, Università di Torino, Piazza Arbarello 8, 10122 Torino, Italy and ICER (Torino, Italy)
paolo{at}hss.caltech.edu
massimo{at}econ.unito.it

We introduce a general model of static choice under uncertainty, arguably the weakest model achieving a separation of cardinal utility and a unique representation of beliefs. Most of the nonexpected utility models existing in the literature are special cases of it. Such separation is motivated by the view that tastes are constant, whereas beliefs change with new information. The model has a simple and natural axiomatization.

Elsewhere (forthcoming), we show that it can be very helpful in the characterization of a notion of ambiguity aversion, as separating utility and beliefs allows us to identify and remove aspects of risk attitude from the decision maker's behavior. Here we show that the model allows us to generalize several results on the characterization of risk aversion in betting behavior. These generalizations are of independent interest, as they show that some traditional results for subjective expected utility preferences can be formulated only in terms of binary acts.

Key Words: Decision theory; choice under uncertainty; utility; risk
History: Received: February 7, 2001; revision received: July 3, 2001;

This article has been cited by other articles:

				R. F. Nau Uncertainty Aversion with Second-Order Utilities and Probabilities Management Science, January 1, 2006; 52(1): 136 - 145. [Abstract] [PDF]

				V. Kobberling and P. P. Wakker Preference Foundations for Nonexpected Utility: A Generalized and Simplified Technique Mathematics of Operations Research, August 1, 2003; 28(3): 395 - 423. [Abstract] [PDF]